It happens that your suppliers make mistakes with invoices – wrong prices, wrong shipments etc. It happens with everyone and obviously; the less it happens, the better for everyone, but when it does, what should your accounting treatment be?

However you see it, regardless of any penalties and such which you may have agreed with your suppliers, that are to be charged for such situations, there’s a general way of treating account payables when such situations arise. 

First and foremost is making sure your payables balance is accurate as soon as possible – that means you need to account for the right invoice. The other side of the entry is either an expense account or inventory balance – they also need to be accurate so it’s important to agree on the right invoice (and also get it).

Say that you’ve initially accounted for the wrong invoice because you need the goods to be used or sold and the payable itself is under dispute. When the right invoice arrives, your accounting entry should be correcting the wrong balance – either taking it fully out from the accounting or merely changing the balances so they meet the ones on the new invoice.

One word of advice is that you should always account for goods in the right amount and right price. You’re going to use them in either your sales or production and as such, they may be used up already once the right invoice arrives. Obviously, if there’s no previously agreed pricelists you have no way of knowing the correct price and as such, it’s riskier and more complicated to start using those goods, but anyway, if you decide to use them, make sure their price is as accurate as possible.